Q3 2022 PGT Innovations Inc Earnings Call
Okay.
Good morning, and welcome to P. G T innovations third quarter 2022 earnings conference call.
All participants are in listen only mode. Please note today's conference is being recorded I'd now like to turn the conference over to P. G. T innovations senior Vice President of corporate development and Treasurer, Brad West. Please go ahead.
Good morning, and welcome to the P. T innovations third quarter 2022 Investor Conference call.
With me on the call today are president and CEO , Jeff Jackson, and our Chief Financial Officer, John Cool.
On the Investor Relations section of our company website, you'll find the earnings press release issued earlier today as well as the slide presentation, we have posted to accompany today's discussion.
This webcast is being recorded and will be available for replay on the company's website.
Before we begin our prepared remarks, please direct your attention to the disclosure statement on slide two of the presentation as well as the disclaimers included in the earnings press release, and our SEC filings discuss forward looking statements.
Today's remarks contain forward looking statements, including statements about our 2022 financial performance outlook.
These statements involve risks uncertainties and other factors that could cause actual results to differ materially.
Additional information on factors that could cause actual results to differ from expected results is available in the company's most recent SEC filings.
Additionally on slide three note that we report results using non-GAAP financial measures, which we believe provide additional information to help investors compare performance between periods a reconciliation to the most directly comparable GAAP measures is included in the tables in the earnings release and in the slide presentation appendix.
At this time I will now hand over the call for a company CEO and President Jeff Jackson.
Thank you Brad good morning, everyone and thanks for joining us today.
Our third quarter was a unique quarter for P. T innovations it was a quarter filled with courage remarkable strength and solid results.
As most of you are aware hurricane in a dangerous high end category four storm hits, the coastal South West, Florida on September 28.
With 125 mile per hour winds beach, and a 16 foot storm surge.
Ian Plowed, a path of destruction through our state.
It was among the most powerful storms ever to hit the coast of Florida.
What we witnessed in the days after the storm has been amazing.
First courage the store made landfall in the heart of where the majority of our Venice and Fort Myers team members live.
The devastating wins in rainfall and flooding impacted approximately 2000 of our team members from Fort Myers, Punta Gorda and North Port.
Some team members lost homes, many were without power and water for weeks.
Second remarkable strength and commitment.
Immediately after the Hurricane P T innovations mobilize to check on our team members welfare and safety.
We distributed generators tarps chain saws, flashlights water and other essential to our affected team members.
We also had many of our partners suppliers and customers provide an outpouring of support as a result of the damage caused by Hurricane Ian and we also would like to express gratitude for them as well.
Third results, we closed our west Florida facility on Tuesday, the 27th of September .
It did not reopen until Monday October 3rd.
While our facilities did not sustain any meaningful physical damage from the hurricane we experienced limited ability to produce at our facilities as our team members could not safely traveled to work due to the flooding and road closures from downed power lines and trees as well as focusing on repairing their own homes.
We made the decision to continue to pay our team members doing those days, even though our facilities were closed.
When we reopened our facilities a lot tober third we realized that we were not be able to return to normal production schedules as many of our employees still could not make it to work safely.
Yeah.
During the first week, we only operating one shift with team members that we're able to travel safely to work.
Productivity was less than what we would otherwise expect.
As we had makeshift teams manning our various production lines.
As the affected communities gradually starting to recover many of our team members were able to begin to return to work.
During the month of October we were able to increase the number of shifts and gradually improve on our production from the first week of the month.
And last but very important coach work in the aftermath of this extremely dangerous storm.
We had no reported impact failures homes built to Florida building coach survived many homes built prior to Florida building codes were unfortunately destroyed.
We have various footage and testimony of the devastation.
In review it is apparent that P T innovations products.
Help home survive this devastating storm with very little or no damage.
Moving on to our third quarter results I'm very pleased to announce we delivered another strong quarter. Despite the challenges we faced.
Looking at our key messages for the quarter on slide four.
Net sales for the quarter grew 28% as we continued to see strength across our key markets, we achieved organic growth of 17%, while enlink contributed $35 million.
While I'm pleased with our third quarter results. It is important to note that hurricane Ian caused us to close our west, Florida facilities, limiting our ability to manufacture and ship product from those locations during the last week of the quarter.
We estimate the fee.
So the closures impacted production and shipments by approximately $12 million during the quarter.
Also during the quarter, we continued to gain in profitability.
Adjusted EBITDA margins improved 320 basis points compared to a year ago quarter.
Prior to the Hurricane we were able to reduce our average lead times for key brands by 50% versus the prior year quarter.
Additionally over the last several quarters, we successfully implemented price increases to offset inflationary pressures.
We will continue to pursue pricing actions, where we faced escalating costs.
Our supply chain team has continued to do an outstanding job to minimize disruptions and support production levels, which has helped us drive improved performance over the past few quarters.
Strong sales and margin continued to produce solid cash flow.
Ending the quarter with $219 million in cash, which enables us to make investments to improve our operations and pursue strategic acquisitions, such as Martin door, which we completed in October .
While we continue to address the challenges presented by the Hurricane we have not lost sight of the macroeconomic environment.
Rising interest rates.
Slowdown in new home sales and the uncertainty facing the U S economy are all things that are impacting our customers and partners.
We have not lost sight of these indicators and decided to proactively take actions to reduce our indirect and overhead costs during the fourth quarter.
We believe these actions will allow us to further streamline our operations and protect our margins while seamlessly continuing to serve our customers.
After hurricane Irma in 2017, we did see an increase in demand for our products and would expect the effects of Ian to favorably impact awareness when it comes to purchasing our products.
While it is still too early to quantify the impacts of hurricane Ian any increase in demand will certainly help offset softening that we would expect to see from the slowdown in the economy.
For example in October we are seeing strong demand and our new self markets in the path of the storm.
We are optimistic that this trend in our direct to consumer channel will translate into momentum for our dealer channels over the coming quarters as well.
Next slide five provides details about our Martin acquisition.
Which supports our framework for profitable growth by expanding our geographic footprint in the Western U S and entering an adjacent building product category.
Martin has an 85 year history is well known high quality fully customizable premium overhead garage doors, serving both the commercial and residential end markets.
This transaction was our first move to an adjacent building products category to complement our existing portfolio of windows and door brands Martin creates cross selling opportunities for existing brands within our Western Division and helps us to capitalize on opportunities within the dealer distributor builder and direct.
Consumer channels across the country.
The expansion of this product category supports P. J T innovations strategic criteria by expanding into building product categories adjacent to the window and door market.
Adding premium overhead garage doors to our product portfolio.
Broadening our geographic footprint and presence in the high growth Western region.
Adding another strong brand name to the P. G T innovations portfolio.
And creating cross selling opportunities and a strong cultural fit across both companies.
The garage door entry market aligns extremely well with our product portfolio additions.
Additionally, Martin's focus on exceptional quality safety and innovation is very much in line with the priorities found across all our P. G T innovation brands, making it a great fit for both organizations.
Market demand for Martin's garage doors, and its efficiency and producing custom products has allowed us to generate EBITDA margins in excess of 30% and strong cash flow conversion.
Martin will operate under P. G T innovations western business unit.
The integration process is already underway and is going smoothly.
Next on slide six let's take a closer look at sales trends that are guiding our outlook.
Total organic growth of 17%, reflecting the strength of our brand portfolio and demand in our markets.
In the southeast region organic sales grew 13% from the prior year quarter.
We are seeing a dip in demand related to the hurricane as production builders across South West, Florida are challenged with repairs to there ready for sale and in process homes.
This is consistent with prior storms as communities are focus on repairing damages to infrastructure and builders are focused on repair and recovery.
Long term these storms impact awareness, which we expect to drive demand for our premium storm resistant windows and doors.
Especially in the Fort Myers area. The destruction caused by the flooding will promote the replacement of older homes with new homes that will be required to meet new building coach resulting in higher levels of storm protection.
During the quarter, we secured exclusive agreements with eight new communities, which will continue to help offset any macroeconomic weakness.
In our western region organic growth was 38% versus the prior year quarter, reflecting strength in our production builder business.
This sector outperformed our expectations for the past two years due to an ongoing strong demand to upgrade indoor outdoor living areas.
We're also seeing the benefit from our capacity expansion in our Phoenix facility, which has allowed us to better serve the custom market. We recently opened a showroom in San Diego, which positions us well to serve the growing southern California home and renovation markets.
And lastly, Enlink continues to outperform our acquisition targets.
Our backlog was 282 million at the end of the third quarter down from $356 million at the start of the year.
The reduction in backlog is primarily due to the strong operational performance of our core PDT business as we are fully recognizing the impact of our 2021 investments.
Ending backlog is also impacted by approximately 12 million of deferred sales at the end of the third quarter related to Hurricane Ian.
Slide seven summarizes the strategic and operational framework that drives our profitable growth.
Our first pillar is customer centric innovation, which drives us to deliver products with features performance in value demanded by our builders and customers.
We're expanding our product offering to improve thermal performance architectural sightlines energy efficiency and indoor outdoor living spaces.
Our second pillar is investing in talent.
Over the last year, we've been incredibly pleased with the caliber of both our new hires and experienced talent and their success in helping our company achieve our growth targets.
We recently welcomed the 173 talented Martin team members to P. G innovations.
Our third pillar is transforming our manufacturing operations to scale in line with our growth.
Our operational flexibility.
Proving our manufacturing processes to reduce or prevent back orders and maintaining efficient warehouse operations.
Our 78000 square foot expansion at our western window facility is producing new windows and offers improved lead times for our western customers is a prime example.
The fourth pillar is allocating strong free cash flow to achieve profitable growth. We're always on the lookout for unique opportunities to improve our product offerings and production capabilities.
Martin acquisition is just one example.
Recognizing that we continue to face an uncertain economic environment, we will remain extremely disciplined as we consider opportunities to deploy capital to profitably grow our business.
Now I'd like to turn the call over to John Cooper to review, our third quarter results in greater detail John .
Thank you.
Moving on to slide eight.
We were very pleased to have achieved $386 million of sales in the third quarter.
Fight the impact Hurricane Ian had on our sales.
The year over year increase in net sales was driven by 17% organic growth from our legacy business and continued growth from our recent aniline acquisition.
Our western segment grew 38% organically, while our south East segment had 13% organic growth.
In the third quarter, our sales breakdown was 58% R&R and 42% new construction.
Organic R&R sales grew 7% compared to the third quarter of 2021.
The strength of our legacy brands helped increase organic new construction sales by 37%.
Adjusted gross profit rose, 45% down $151 million for the third quarter of 2022 compared to the third quarter of 2021.
Our third quarter results were driven by continued solid performance from our Washington operations operational improvements in the southeast improvements and scrap improved labor efficiency and pricing actions, which outpaced material and wage inflation.
Now, let me spot pricing for aluminum has steadily decreased during the year.
Our October 1st net hedging liability of $3 4 million will be recognized in the fourth quarter.
We are also assessing our 'twenty 'twenty three aluminum requirements and they add to our head to hedge position in the coming quarter.
Third quarter adjusted gross margin was 39, 1% 440 basis points higher than the prior year quarter.
Driven by price increases manufacturing process improvements and labor efficiencies.
Adjusted selling general and administrative expenses increased 26% in the third quarter compared to the prior year driven by the SG&A from our recent acquisition the expansion of our new South operation and increased labor and distribution costs and an increase in marketing spend.
Third quarter, adjusted selling general and administrative expenses were 25, 8% roughly in line with the prior year quarter.
Adjusted EBITDA was 68 million, 58% higher than the prior year quarter, primarily resulting from pricing actions to offset inflationary pressures and improved manufacturing performance.
Tax expense in the quarter came in at 24, 8% in line with our full year assumptions.
We reported adjusted net income of $33 2 million or 55 cents per diluted share compared to $15 8 million or <unk> 26 cents per diluted share in the third quarter of 2021.
Turning now to our balance sheet on slide nine at the end of the third quarter, we had net debt of $416 million, including a cash balance of $219 million.
On October 14th we entered into a new five year $250 million revolving credit facility. We use this facility along with cash on hand to fund the Martin acquisition.
The new facility allows us to extend maturities, while enhancing the company's liquidity.
When a third quarter pro forma basis after considering the effects of the acquisition, we had a trailing 12 month bank covenant net debt to adjusted EBITDA ratio of two two times at the end of the third quarter.
For the quarter ended October 1st our trailing 12 month net debt to adjusted EBITDA ratio was approximately one six times.
Slide 10 shows our EBITDA growth over the past several years. This growth has been realized organically and through acquisitions, all while maintaining a conservative leverage profile.
Our expectation is to continue to grow while maintaining a kurt conservative financial position by using our strong cash flows to reduce leverage after acquisition.
Since the completion of our England acquisition and based on the pro forma metrics for Mark we continue to be within our long term leverage target range up two to three times.
On Slide 11, you will see a summary of our long term capital allocation priorities.
Our first priority is to reinvest in our business, which includes allocating capital for innovative and compelling projects that we expect will drive margin and revenue growth for example investments in advanced manufacturing and automation over the past few years are now, enabling us to enjoy higher run rates.
And a lower cost structure, we expect these investments will allow us to continue to enhance both margins and revenue.
Our second priority is to reduce debt and maintain a strong balance sheet.
We expect to maintain a conservative leverage profile within a range of two times to three times net debt to EBITDA, although our preference is to stay at the low end of that range.
Reducing leverage after acquisitions will remain a capital allocation priority.
We will continue to be extremely disciplined about future strategic acquisitions as we did with the Martin transaction, we will look for opportunities that would enable us to expand into new regions channels or products that are aligned with our growth priorities and that we expect to grow shareholder value over the long term.
We also note that we have about 25 million available under our authorized share repurchase program and we continue to believe that P. G T as an attractive investment.
Now I would like to turn the call back over to Jeff.
Yeah.
Yeah.
Thanks, John .
The final point I'd like to mention before we get to our guidance is that on November 5th we detected a ransomware infection that impacted portions of our network and caused disruptions to our daily operations.
Upon detecting the security of that the company took immediate steps designed to contain the incident and implemented our business continuity plan to restore and support continued operations.
We also notified appropriate law enforcement authorities and are working closely with cyber security experts and legal counsel.
The Internet, primarily impacted our west, Florida facilities, limiting our ability to operate.
We have been successful in getting the majority of our operations back online and expect all of our operations to be back up and running by Monday.
While we are still in the early stages of our investigation. We believe we had limited the impact of this incident.
Next I'd like to review our outlook for 2022 on slide 12.
The guidance, we provided in July did not contemplate the impacts of the hurricane are the cyber security incident on our Florida operations, while our third quarter was noteworthy our fourth quarter will be impacted by the inefficiencies in our Florida operations caused by these two events.
As such we anticipate revenue for the full year to be in the range of 1.46 to 1.49 billion.
This guidance.
Projects 30 to 40 million of additional sales will be deferred into the first quarter of 2023.
Due in part to the events on our southwest, Florida operations somewhat offset by the $13 million in sales from our Martin acquisition.
We anticipate adjusted EBITDA to be in the range of $245 million to $255 million.
The revised EBITDA range is due to operational inefficiencies mentioned earlier.
The deferral of sales from Hurricane Dorian.
And the cyber security incident, partially offset by the incremental profit from the strong EBITDA margins of our Martin acquisition.
We plan to share our thoughts on our 2023 outlook on our year end earnings call in February .
Turning to slide 13.
In closing today, let me remind everyone. While we believe PGD innovations is in an excellent position to continue to create long term value for our shareholders.
First we are a national leader with an outstanding portfolio of brands that we have strengthened through acquisitions.
We're executing on our growth strategy, including expansion into high margin adjacent building project product categories to complement our existing portfolio of window and door brands.
Our products and impact resistant and indoor outdoor living market continue to gain traction.
We service geographies with strong population growth.
Second the diversification of our product portfolio continues to expand which further facilitate profitable growth in both the new construction and the R&R channels.
Third operational improvements and capital investments have increased our capacities, which helps us meet the man and delivers consistent margin expansion.
Strong free cash flow gives us more options to best meet our growth needs.
Fourth our ongoing investment in innovation, new product development and talent helps us provide customers with innovative premium product to meet their changing needs.
And as Q3 has shown our products help protect both property and lives.
Lastly, we hold a long tradition of caring for the health and welfare of our team members in the communities we serve.
We continued to contribute to the relief efforts to help our team members impacted by Hurricane Ian.
And we will not compromise our commitment to conducting business in a socially responsible manner.
While our third quarter results and full year outlook are impacted by hurricane in the P. G team is healthy and strong and on our way to a full recovery.
I want to thank our shareholders team members channel partners and suppliers for their continued support.
At this time, let me begin the call the Q&A with the operator operator.
Thank you we will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys.
If at any time in your question that's been addressed and you would like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question will come from Joe Ahlers Meyer with Deutsche Bank. Please go ahead.
Hey, good morning, everybody. Thanks for the questions.
Good morning, just wondering Joe.
Yeah I was wondering if you could just start maybe by talking about what you're seeing in the new residential channel about 40% of your business. I mean, we are hearing that the market is down of course.
But we're hearing as well that you're winning business and you talked also about the psychological tail winds from these storms I'm wondering if that's increased penetration in the channel maybe just kind of talk about all those things together, what you're seeing currently.
Sure I'll touch on some highlights here and John can give some some actual color on on order patterns.
You know Joe that's a great question, we have seen and we've won some new communities as I've mentioned in my prepared remarks.
Help offset quite frankly is somewhat of a slowdown from the new construction order channel.
But we continue to do we feel gain share that that we quite frankly due to supply chain issues back in 2021 we lost and so we've been regaining that share this year and that's shown in our operations.
So we continue to believe that the markets. We serve we were targeting you know in growth markets, Florida, Texas, Arizona those markets, while impacted obviously by somewhat of a slowdown or not near as impacted as the rest of the regions. So so what we're seeing is continued a strong.
Performance in our new construction you know we are working off a backlog you know quite frankly of a robust backlog that from an operational standpoint before the hurricane our operations were hitting numbers that we hadn't hit in 18 months in terms of performance. So you know we're operating great working off the backlog winning.
Some additional communities winning back some market share in the new construction channel and all of that realizing that the order patterns are slowing down I read the same reports everybody else reads from from all the builders homebuilders public homebuilders and you know some of that is getting seen through our order patterns Johnny.
Jeff I think you said it well I mean, I think you've covered it in your prepared remarks, you mentioned in highlighting the fact that we are have opportunities with eight new home building sites. So that was obviously offset the softness that we see in the general economy just.
Jeff mentioned also as well, we see that potential slowdown.
But the offset to that would be the order patterns from the hurricane that he mentioned as well on the R&R side, where again, we would expect to see a pickup a hurricane does change behavior and does change thought processes. So we would expect that and then don't forget as well you have the sales tax initiative, which should help.
You know a further compel the decision making process when it comes to R&R decisions or a new home decisions with respect the windows. So that'll all be helpful. So you know we're going to give you more color on that in February when we have our fourth quarter call we need to.
Iron out all the ebbs and flows of the dynamics, but we'll be prepared in February to give you more color on it at all yeah and I'd also just add to that Joe. That's a good point are in the path of the storm like I'd mentioned in my prepared remarks, our new self store store saw order order growth of 40 plus percent a month.
Four months, so sequential months so the.
The awareness factor I don't want to underplay, we saw the same thing in 2017 and that awareness factor stretched over about a good 18 months to 24 24 month period. So we do expect that a drive that you know for the folks that hadn't experienced that kind of hurricane before Oh two.
Drive R&R within the Florida market.
And then al will also touch on what we've done out west to kind of come back a slowdown.
You know like.
Last year, we bought to Cri, which has an install business basically one of our dealers in southern California, We're expanding that model. We're about to open up we've already opened up we're about to actually physically open up a location in our Arizona.
Our market. So we will be for instance, with toll brothers will be installing their products as well like we do in southern Cal. So we've got some natural offset some some markets we hadn't been in a if you will that'll help also offset a slowing construction.
That's really encouraging and I appreciate all the detail there if we could talk maybe about the acquisition of the Martin acquisition. It looks like some really great products here like you said this is an adjacency I have two questions really around I was hoping maybe you could just go into a little more detail on the cross selling opportunities what that looks like if it's maybe specific to one channel where.
We'd see greater synergies I'm thinking maybe the builder channel, where you already are winning bids on certain products that you've got already or.
Or are you may be gaining distribution for your existing products by putting them alongside the doors and then just more broadly as you're thinking about the concentric circles around your core product what other categories might fit into this framework, where you feel like there's enough overlap to cover synergies, but they're different enough.
It's impactful to growth.
Sure Great question first of all Martin Incredible acquisition, you know, we do openings, we have our own garage door impact garage door, nor I lab as a matter of fact, we've introduced this past year.
And we've taken orders on that garage door, but you know if it's an opening we think we can fill it and it's a very good adjacent for us to get into a high high mid thirties EBITA margin.
So we're very excited to bring that portfolio of that brand into the P. G T innovations family.
And there are also known for their quality and even within the garage door industry, everybody knows Martin garage door for their quality of their product and their delivery they have incredibly tight.
Tight delivery lead times so.
Historically Martin has been on R&R channel play.
And what we want to do is bring it into that new construction play just like you said, we do plan on and have already reached out to some of our contracts that we currently have in your new homebuilders, new construction home builders.
And have had very positive feedback and schedule meetings in the R&R side too for the big box, we've actually they've actually reached out to us.
Regarding potentially getting getting the garage door into some of those locations and those relationships as well. So so we see it is as a play not only continuing to expand their R&R presence.
But also into the new construction market.
For Newsouth is going to be an incredible opportunity to put a garage door into a showroom and while somebody is in that home, making the window sill also making a garage door sale. It just aligns incredibly well so.
So we do plan on putting putting the garage door display into all 17 of our new South stores. Eventually you know impact obviously in the Florida regions, but in the non impact region, such as Atlanta or the Carolinas are it'll.
It'll be just a standard garage doors. So so far it's been the the integration has been smooth very smooth.
The results have been online.
And the interest in our for more I would say our customers both new construction and R&R side has been heightened.
So we see it as a great opportunity to continue to expand into two a great market with high margins.
Yeah, I'd say the only other you had mentioned the.
Other categories it would fit into the framework I think Jeff said, it well I just want to make sure. We address that part of the question and then you know openings, Jeff mentioned openings and we think openings you know fit what.
What we do our strategy our strategic approach.
With respect to Martin it's custom as well we are accustom manufacturer. So you have all those opportunities and those synergies along with what Jeff mentioned I can give you a perfect picture. If you will the CEO Martin Scott He yeah. When I first met him. He has in his house western window systems Windows and <unk>.
Sliding glass doors, and a Martin garage door.
So you know you showed us the picture they just complement each other incredibly well. So we think it adds a very strong sales pitch to the end market.
That's great color, Thanks, again, guys and stay safe.
Thank you.
Our next question will come from Phil <unk> with Jefferies. Please go ahead.
You guys are just kudos to the team it's quite animal what you guys are doing with your employees in light of the hurricane So kudos to the team on that front. Thank you Phil Yeah, I guess big picture on the potential lift from Hurricane and if I remember correctly back in 2018 post Irma organic sales.
Up about 20% you know at least a part of that was that uplift. How do you kind of size are heating up and you know how do you see that kind of ramping up appreciating there's a long tail.
And then more importantly, do you have the bandwidth to meet that demand I know you guys are certainly invested in recent years in terms of freeing up capacity. So just wanted some color how to think about that opportunity.
Yeah. That's a great question, Yeah, I would say if I'm comparing into Irma RMR was a storm that they didn't have a path you know first it was east coast then it was central than it was the west coast.
So an impact and in a lot of Florida means a vacuum with you I think the number was right touted around 6 million people evacuated.
The hurricane.
E N. However had a path and in this path was it was devastating you know when it hits Fort Myers area, North Port Port Charlotte.
As a category four storm the wins of Ian again, its historical it's one of the biggest storms to ever hit Florida.
I have the yen for example, Ah was bigger than hurricane charters back in 2005, when Hurricane Charlie went through that same area. So the magnitude of that storm and the devastation impact I think shown much more.
And then the Hurricane we had in 2017 and you can see that it just in the Fort Myers area itself from the footage. So we you know we think it'll it'll drive more code awareness, maybe even a more stronger adoption of codes inland as you move into Florida.
Again, this hurricane actually marched all the way through our you know the center of the state and there was flooding.
In the center of the state of Florida, So I think the wind speeds there.
We're also still at 100 miles per hour plus in cities like Miami and you know places that you would think it would be safe. So actually I think you know again the devastation that this storm brought Ah was was seen more as targeted into that area and then also the flooding that occurred afterwards.
So I do contrast, those two as is both of them were horrible events are impacting our lives and property.
I would just say the last one was probably more severe in terms of its magnitude of wins and flooding.
And in terms of <unk>.
Ernest and potential market lift for this yeah, I think definitely since these storms are heading inland I think more and more people who are not even required to put an impact product are looking to put in and pet products.
And I think that will drive you know the state of Florida, Florida Building Commission potentially to look at this and maybe make those impact zones, even larger.
Core products required.
And I think that's going to be a good thing because again, it's protects property homes lives and also with the insurance issues, Florida has again, if you're if you've got an impact protect home built the codes. It survive. If you. If you go and look at these homes I'd say, 95% of them survived and given the insurance initiatives that are going on.
On the state of Florida, I think a big push on code will line up very well with that as well.
So awareness from that in is definitely there John .
John you want to yeah, No I think you hit it well I mean, the only other point I'd highlight is just mentioned we have a new south operations with Newsouth retail stores and the orders are up meaningfully in those retail stores on our distribution side. It usually takes a little longer for us to recognize those orders, but our expectation is.
We expect to see them in now you quoted the number of 20% I'm not prepared at this point to say, whether it's 'twenty less or more whatever it may be.
But the Newsouth stores have seen favorable you know order entry with respect to our post sales after the hurricane and I'll address the second part of the question the capacity and in our ability to meet that demand.
We'll give kudos to my operational team in Florida.
Honest, where you that team has done an incredible job recovering from from the effects of supply chain on Covid, you know hiring folks everything it was prior to this hurricane rocking through Florida Rolling through Florida.
Our on time in full had approached back up into the Eighty's.
And this is compared to you know until 18 months ago. It was in the thirties and we couldn't get people in we had to hire this big hiring hiring late well now we not only have we hired folks we've trained them or our dark labor is at where it was in our peak when we hit our.
2018 numbers and so and 19, so our dark labors back in line, our Retentions improved 25% you know our turnover rates in Peru, 25% in the last 12 months. So we're keeping our folks theyre getting trained we have an incredible workforce and they're delivering so our efficiencies are up the capacity in our vinyl plant alone.
And then for vinyl in PT alone is up 20% year over year.
And that's not you didnt necessarily physical expansion, that's more a line alignment some technology, but better efficiencies in production.
And shifting so so the team has done an outstanding job in increasing its ability to meet that demand in the future. We are going to be investing in more vinyl a capacity we have the premium impact resistant vinyl line I'm day, everybody wants a P. G T win guard vinyl and so we are expanding that capacity.
As we speak and we will be over the next 12 months, you know again keeping in mind.
Coming into a recession potentially here in 2023, and you know orders can kinslow interest rates are up all that stuff is is kind of the you know headwinds, where we're going into but with that said we are going to still expand our vinyl capacity just because of the sheer demand and we received.
And so if you look in the next 12 months, we should be able to easily extend our vinyl capacity you buy you know 35, 40% and that's kind of what's on the board to operational board target.
Got it that's great color and then Jeff earlier, you mentioned orders were slowing down a little bit was that in reference to the new builder side of things are you seeing it pretty broadly across all your markets are R&R as well and then some building product companies are this recent quarters have called out you know destock in the channel from your channel partners or even.
Contractors builders, how do you kind of size up that risk.
Yeah, No we saw it really we've seen a softening in orders across even in even in the R&R channels. We attributed some of that R&R, especially to the election kind of cycle people kind of stopped spending you can't advertise as much on TV, because it's too expensive.
That kind of thing and also again as interest rates rise.
I think and you know the equity markets are impacted I think people you know take stock in and think about bigger projects.
One incredibly good thing is the aging stock of homes in the U S is there I mean, there was a whole boom in the late 19 nineties early two thousands and those homes are you know 20 years old 20, plus years old and as those homes age are the products. We serve garage doors for example.
Windows and doors roofs, which we don't do but those are kind of the three high spots of it that you look at replacing after about a 2025 year period. So I think we've got a natural tailwind with the aging stock of homes and I think also obviously is.
[noise] amount of new construction homes go down and people, maybe not going into the new construction as much they are staying in their current homes. They will fix up those homes.
And so that's a natural kind of a tailwind for us as well again, it's 60% of our business roughly approximately is all in our so we do play heavily in that.
But we have seen again softening across the channels in and probably every market I would say from a you know from from Florida, Texas to you know Arizona.
Market data now some of our initiatives in those markets, we still gain share.
For instance permits permits were down in Arizona, but we've gained share permits were down and in and in California.
Third quarter over third quarter, but we gained share so we actually grew.
We've got again, what we call some good initiatives there that we can fight.
The.
The decrease in Spain permits in and potentially a decrease in housing we've got some good initiatives. We think can help offset some of that.
Thanks, a lot.
Our next question will come from Michael Rehaut with JP Morgan. Please go ahead.
Hi, Good morning, guys stopped blah blah for Mike I'm, just wondering though with current softness in the residential market had any builders starting to approach you on pricing and if so do you anticipate any give back on pricing next year due to the softer demand drop backdrop in Pennsylvania.
As you know, it's a great question I've read about that.
There is no we haven't been approached for pricing.
I'm, not saying it won't happen, but it hasn't happened and traditionally been something we've served up Oh by the way are you know, we think we offer products or impact lines are unique.
Not everybody has that are now our garage doors high and unique our western window is top of the line indoor outdoor living is unique with it with a different features it offers.
And you know we're even at the Ibs show in January and we are going to debut a 12 foot tall thin profile, our western window into what they've endorsed gonna be phenomenon.
It's going to be a huge sense of success. When you offer innovative products you don't have to do on the pricing as much and so I'm not saying, we're immune to it I am saying, we hadn't heard from it and our plans are to hold online as best we can on that and if anything if if costs continue to escalate.
If we need to in the future.
We look to maintain our margins through pricing not necessarily they improve it we look to improve our margins through operational efficiencies and attacking market share in fixed cost leverage.
Yeah.
Great very helpful. And then secondly, given that you're executing a modest strategic call.
Various products and segments that you just talked about can you give us some thoughts on how you think about market growth for example markets were down 15% mentioned.
Would you anticipate yourselves performing.
Yeah.
And so you know.
I think Jeff in his prepared remarks addressed a lot of that we see it when we looked at you know the.
And I'll make indicators that are out there Jeff talk about extensively about the new initiatives, we talked about the the residential side new construction you know the eight new communities that we had so we certainly see that.
Softness and we would expect that our initiatives will Oh, you know what.
We'll offset some of that and like I said in my in my remarks, too will come out with more color in February you know, where we're going to address that more completely in February for you.
Great. Thank you Brad.
Sure. Thank you.
Again, if you have a question. Please press Star then one our next question will come from Judy Merrick with Truest Securities. Please go ahead.
Thanks. This is Judy on for Keith Hughes, and just kind of clarify on an earlier question and the west looks like you had a very positive growth in the third quarter.
How has the pace of business slowed down there.
Is it just spend difference or different markets or is it kind of a share gain that you're also seeing kind of helped out there.
Yeah.
So.
Sorry, what was that.
If some markets just very different performance by <unk>.
Different states or is it also kind of a share gain that's helping you.
On the pace of bolt in the Western region.
Yes, the western regions has done a very good job and as Jeff mentioned with respect to it.
We track we track a lot of the macroeconomic indicators out there to see how we're performing versus the market and permits is one of them and we have seen a contraction in permits which is what everyone would expect in light of the rising interest rates, but our performance has actually improved or exceeded that we've seen overall growth. So those are the.
Initiatives that we're undertaking undertaking.
And then in which imply as well that we are gaining share overall.
So we do see those macroeconomic indicators those are all things that are all other analysts and investors look at we see them as well, we're trying to take initiatives to offset that that macroeconomic weakness.
And in our top line.
Okay, great. Thank you.
Mhm.
This concludes our question and answer session I would like to turn the conference back over to Mr. Cohen for any closing remarks.
Yes, I would like to thank you for joining us on our third quarter Investor earnings presentation. We.
We appreciate your interest in the company and look forward to talking to you again in February when we discuss our fourth quarter and full year results. Thank you again bye bye.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.